Opportunity Cost

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Opportunity Cost

  1. 1. OPPORTUNITY COST
  2. 2. <ul><li>Opportunity costs is the concept of cost necessary for economic decisions </li></ul>
  3. 3. WHAT IS OPPORTUNITY COST? <ul><li>Sometimes it is easier to understand a concept starting out what it is not. </li></ul><ul><li>Usually we think of costs as out-of-pocket costs </li></ul><ul><li>5rs (cost of a cup of coffee) </li></ul><ul><li>5lakhs (cost of car) </li></ul><ul><li>At the time we make the decision to buy the cup of coffee or the car, this out-of-pocket cost is also (usually) the opportunity cost </li></ul><ul><li>With the passage of time, the two tend to diverge from each other </li></ul>
  4. 4. <ul><li>Opportunity cost or economic opportunity loss is the value of a product forgone to produce or obtain another product. Opportunity cost analysis is an important part of a company's decision-making processes, but is not treated as an actual cost in any financial statement. The next best thing that a person can engage in is referred to as the opportunity cost of doing the best thing and ignoring the next best thing to be done. </li></ul>
  5. 5. <ul><ul><li>Opportunity cost is a key concept in economics because it implies the choice between desirable, yet mutually exclusive results. It has been described as expressing &quot;the basic relationship between scarcity and choice.&quot; The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently. Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered. There is always an opportunity cost in a decision that is made either in economics or everyday life. </li></ul></ul>
  6. 6. EXAMPLE OF OPPORTUNITY COST
  7. 7. THE ROAD NOT TRAVELED <ul><li>Opportunity cost, then, is a measure of what has been given up when we make a decision. </li></ul><ul><li>Consider what Robert Frost had in mind when he wrote, </li></ul><ul><li>Two roads diverged in a wood, and I </li></ul><ul><li>I took the one less traveled by, </li></ul><ul><li>And that has made all the difference. </li></ul><ul><li>Imagine the immeasurable opportunity cost to all of us if Robert Frost had taken the road more traveled by. </li></ul>
  8. 8. CONCLUSION <ul><li>Economics costs include, in addition to explicit money outlays, those opportunity cost incurred because resources can be used in alternative ways. </li></ul>
  9. 10. THANK YOU

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